South32 has entered into a binding agreement to sell Illawarra Metallurgical Coal to an entity owned by Golden Energy and Resources, and M Resources for up to USD$1.65 billion.

The consideration for the transaction consists of:

  • Upfront cash consideration of USD$1,050 million, payable at completion
  • Deferred cash consideration of USD$250 million, payable in 2030
  • Contingent price-linked cash consideration of up to USD$350 million

The total consideration represents a multiple of approximately 7.2 times the average annual free cash flow for Illawarra Metallurgical Coal.

The transaction is expected to be complete in the first half of the 2024-25 financial year, subject to the satisfaction of certain conditions including Foreign Investment Review Board approval, customary regulatory approvals and the waiver or non-exercise of pre-emption rights held by BlueScope Steel (AIS) Proprietary Limited (BlueScope).

The buyer will assume economic and operating control of Illawarra Metallurgical Coal on completion of the transaction, including all current and future liabilities.

South32 CEO, Graham Kerr, said that this transaction will realise significant value for South32’s shareholders and is consistent with the company’s strategy to reshape its portfolio toward commodities critical in the transition to a low-carbon future.

“It will streamline our portfolio, strengthen our balance sheet and unlock capital to invest in our high-quality development projects in copper and zinc,” Mr Kerr said. 

“The transaction will also simplify our business and reduce our capital intensity.

“Illawarra Metallurgical Coal produces high-quality metallurgical coal, a key ingredient in the production of steel, which will be required until low-carbon steel becomes economically viable on a commercial scale.

“GEAR and M Resources are established participants in the Australian metallurgical coal industry, with a strong commitment to environmental and safety standards, and are well positioned to continue Illawarra Metallurgical Coal’s contribution to the local steel industry and the Illawarra and Macarthur regions.

“Our focus remains the safe and reliable operation of Illawarra Metallurgical Coal. Over the coming months we will work with the buyer, our workforce, the local community, government, customers and suppliers to support a successful transition of ownership.”

South32 expects that the transaction will unlock significant value for its shareholders and that it is consistent with the company’s strategy. 

Transaction highlights include: 

  • Upfront and deferred cash consideration of USD$1,300 million plus exposure to metallurgical coal price upside of up to USD$350 million through contingent price-linked cash consideration
  • Simplifies South32’s portfolio to focus on its operating positions and growth options in the aluminium value chain, base metals and manganese
  • Strengthens the company’s balance sheet and unlocks capital to invest in its high-quality development projects in copper and zinc, which have the potential to underpin an approximately 45 per cent increase in its base metals production
  • Reduces South32’s operating footprint and functional support
  • Reduces the company’s capital intensity, with Illawarra Metallurgical Coal comprising approximately 35 per cent of group capital expenditure 

The transaction is subject to the waiver or non-exercise of pre-emption rights held by BlueScope, pursuant to a coal supply agreement between Illawarra Metallurgical Coal and BlueScope. If BlueScope exercises its pre-emption rights, the transaction with the buyer will not proceed and South32 will instead divest Illawarra Metallurgical Coal to BlueScope on the same commercial terms and conditions as agreed with the buyer.

The transaction is also subject to no material adverse change prior to completion, pursuant to which the buyer may elect to terminate the transaction if an uncured event occurs resulting in a significant reduction in coal output, net assets or reserves. The material adverse change definition is also subject to a number of customary exclusions.

The transaction includes an upfront deposit of USD$40 million payable to South32. The deposit will be refunded if the conditions precedent to the transaction are not satisfied (with the exception of international merger clearances).

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